Friday, September 23, 2011

Harper-nomics Is Recipe For Global Depression & Trade Wars

I feel like I'm repeating myself, having just written that the global crisis is not a crisis of debt but, rather, that the debt is a symptom of the long term decline in the rate of profit. Now, I read Stephen Harper and British Tory Prime Minister David Cameron blathering on about how "This is not a traditional, cyclical recession, it’s a debt crisis," as Cameron put it. The only logical conclusion, if that is the case, is to attack the deficit. And, sure enough, the prescription that they're offering is precisely that.

[Cameron[ urged action on three fronts:
• Tackle debt and restore credibility and confidence;
• Make it easier to do business and create jobs by freeing up economies;
• Work together to boost world trade, starting with the Doha Round.

The translation of those innocuous words is rather more disastrous than they seem at first glance - austerity, de-regulation and more de-regulation. But, as the saying goes, doing the same thing over and over and expecting different results is a sign of mental health problems. The present expression of the crisis was precisely the result of relying on debt to solve underlying structural problems - many of them the result of declining living standards that arose as either a direct result or side effect of past austerity that saw the chipping away at public services. When public services are cut, working people have to pick up the slack with stagnating or declining wages. They can only do so by going deeper into debt or, following the lead of the banks, by trying to boost income by taking advantage of speculative bubbles, either through various types of investment plans disguised as pensions or by cashing in an illusory increase in equity on their homes. In both cases, the chickens ultimately come home to roost - home prices stop rising as they reach the limits of what people can afford and, ultimately leading to a bursting of the price bubble, which causes more foreclosures, leading to a further price collapse and so on. And their pension plans - both private, corporate and, increasingly even public plans - go into crisis, having bet the farm on speculative bubbles and phoney investment "opportunities" sold by investment banks as collateralized debt obligations and other exotic and impenetrable "financial products" that were really just bags of shit painted with a smiley face on them.
As far as deregulation is concerned, this is precisely what led to the financial crisis in the first place - as banks were able to package and sell garbage as well as themselves investing heavily in this toxic junk. Deregulation of the financial sector led (combined in many districts with previous cuts to taxes on the wealthy) directly to the present high levels of government (aka sovereign) debt. In other areas, deregulation means more Enrons - which combined with other electricity companies to jack up utility prices in California by illegally choking supply - or more Walkertons, where people died as a result of a water treatment system that was privatized to unqualified companies whose only interest was making money. With that kind of record, do you think that we'll be better off if we remove regulations from pharmaceuticals - which already buy positive research results - or nuclear energy (cough, cough, Japan), or the auto industry, or the food processing industry or...
No, at best we'll end up with an economic recovery that is built on more danger and misery for ordinary people as companies produce what they want how they want with no reference to the quality, or safety of their goods. But, more likely the result will be that the Herbert Hoover Re-enactment Society will drive the global economy into a Great Depression Redux. You don't have to be a Marxist to know that smashing consumption at a time when business investment is contracting is about the most stupid thing that you can do. The great lesson of the Great Depression was exactly this: Hoover responded to the onset of the Depression with austerity, making it worse than it had to be. Roosevelt prematurely tried to rein in the deficit in 1937, leading to a steep decline in the economy until the approach of war led the US - and almost everyone other country - to pour resources into re-tooling entire economies towards war production, thus re-inflating consumption.
Ultimately, the lesson from the Great Depression is that the real goal of idiots like Harper was to massively devalue the cost of commodities as a way to restore profits. Unfortunately for the mass of the population the main target of depreciation was wages and working conditions. The elephant in the room is China, with its decades long growth rates approaching (or surpassing) ten percent. Manufacturing is drawn to China like a moth to a backyard bug zapper because of the cheap price of labour, making it the envy of every corporation on the planet. And, for governments in developed countries, unwilling to invest in new infrastructure by raising taxes as an alternative way to compete, the idea of out-sweat-shopping China is appealing. Certainly China's living standards are rising at rates that would make western workers, with their stagnant living standards, drool. But they are rising from such a low rate that even after more than two decades of constant growth - at rates lower than the overall rate of growth, it's worth saying - they are still a fraction of living standards in the west. And that presents a problem not only for western workers who can't compete with such low wage rates. It also presents a problem for western capitalists. If the rise in China's living standards aren't enough to meet those of western societies in time to save their economies, then the living standards of western economies must be depreciated rapidly in order to compete with Chinese labour. This is the real meaning of calls to "boost world trade." They will boost world trade by making goods from the west cheaper and they will be made cheaper by reducing labour costs.
While that seems horrific if you happen to be a member of the working class - i.e. of the majority - it would seem to a blinkered pro-capitalist politician to make a lot of sense. The trouble is, it won't work. It's an unbendable rule in physics that every action creates an equal and opposite reaction. China has a ruling class perhaps more cognizant than most about its long term interests. It is their intention to allow a slow and controlled rise in living standards as their economy approaches "development", rather than being a "developing economy". Their recent acceptance of a rise in their currency is an expression of this goal. But not only will the immediate effect of Harper's & Cameron's austerity recipe increase the possibility of a series of profound financial and economic collapses, they will be met be a reaction from China that will attempt to neuter the effect of a rapid decline of living standards in the west. History never repeats itself exactly but, in this case, austerity must be understood as a trade war by other means.
AFTERWORD:
As a side note, another option to which ruling classes have traditionally turned has been protectionism. At present the dominant thrust - with memories of World War Two, which emanated from protectionist responses to the Great Depression - has been towards austerity and deregulation as an alternative to protectionism; a sort of race to the bottom model. But the protectionist model is also a dangerous game to play and so it is deeply disheartening that the Ontario NDP in the present provincial election has made "Ontario first" a central plank of its job creation platform. First of all, on its own this will have negligible effect. But secondly, it's not the case that a government gets to impose protectionist measures and there is no reaction. Of course the WTO would step in but Ontario gets significant inputs and products from countries around the world and a trade war with a minor economy like Ontario's would be economically and politically devastating. It also suggests that the problem is a regional and not a class one, as though Quebec train manufacturing workers are less deserving of work than Ontario train manufacturing workers. It is fundamentally a politic built upon a passive acceptance of the status quo. It is not left wing at all and has no role for working people - across provincial, let alone national boundaries - struggling together to defend their living standards from the corporate predators and their representatives like Stephen Harper. That is, of course, the perspective of union bureaucrats who would rather the NDP pass meaningless legislation than mobilize their members but it is a disaster for working people.